A Disequilibrium Model of Real Wages, Employment and Unemployment for the U.S.A. during 1930-1965

B. Rao

Empirical Economics, 1990, vol. 15, issue 1, 55-75

Abstract: The well known Lucas-Rapping (1969, 1970) U.S. Labor market model has been estimated with a simple disequilibrium estimation method. Neither the wage rate not the employment level are found to adjust to clear the labor market within the unit time period. The elasticity of labor supply in the short run is found to be high which is consistent with the recent theories of real business cycle. Adjustment in employment towards equilibrium is faster than the adjustment in the wages. The rate of unemployment is satisfactorily explained by the excess supply rate without the need for the lagged unemployment rate. Thus our unemployment equation is superior to the Lucas-Rapping equation based on the equilibrium framework.

Date: 1990
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